FCA advice head defends changing suitability review outcomes

The FCA has defended having to change some of the verdicts it gave back to firms in its advice suitability review.

FCA director of life insurance and financial advice Linda Woodall

The regulator published the results of the long-awaited review last week. Of the more than 1,000 individual pieces of advice reviewed, roughly 93 per cent were found to be suitable, 4 per cent were unsuitable and a further 3 per cent were unclear.

The FCA presented firms with individual feedback earlier this year. The regulator gave firms a chance to come back with comments on their individual feedback. 119 did so, and the FCA changed its findings on 35 occasions, the regulator revealed in its final report.

Speaking to Money Marketing, FCA director of life insurance and financial advice Linda Woodall defended having to amend some of its verdicts.

Woodall said: “Under the circumstances we created a snapshot and offered the firms an opportunity to challenge so that we know the results or conclusions we were making were robust. That’s only fair.

“We considered that challenge very seriously…If we had formed a conclusion that was not quite right then we amended that conclusion as appropriate.

“In terms of was this satisfactory, what we were engaging with was a huge task looking at nearly 1,200 files, there’s a fair bit of analysis there. It’s not unusual for firms to want to comment to our conclusions, it’s absolutely right we should take into consideration that challenge.”

Restricted firms performed six percentage points better than independents on suitability and 35 percentage points better on disclosure. Network firms and firms with more than 25 advisers also performed significantly better than directly authorised and smaller firms in both categories.

However, Woodall says the FCA would not be changing its neutral stance when it comes to what model advice firms run.

She said: “When it comes to looking at the results as a whole, particularly on suitability, there are some differences, [but] the level of suitability is high, therefore we are not worried about those differences.”

“We have no specific concerns about different types of business models.”

Woodall said no firms have been referred to enforcement as a result of the review, and the regulator would focus on “engagement and communication” going forward.

“What we have seen generally, the results we have had, firms are recommending products and services that meet the needs of their clients, whatever those are.”

When it comes to disclosure, Woodall that using templates had been found wanting on some occasions, and that initial disclosure was the main focus of the FCA review.

Woodall says advisers should be giving a sense to their clients about what they would typically charge for a particular service so there are no “unpleasant surprises” for the client.

RDR rumblings

Woodall praised advisers for how they have adopted the principles of the RDR though.

“Obviously the RDR has been a huge effort on the part of the regulator but more importantly on the part of the industry. We create the framework but it’s the industry that has to do the hard work and we were really pleased at these results. We hope when we come to do it again it’s at least as good if not better.”

“The main thing is not congratulating ourselves with the RDR, whats important is how clients who deal with an IFA can have confidence they will get suitable advice.”

“It’s a marketplace that continually changes, not just the advice market but that products and services they are advising on. That brings a new set of risks we have to be alive to. We have obviously shared through our business plan and sector approaches areas we are particularly concerned with right now. Those are areas we are going to want to assess and take more time on.”

The FCA will share examples of good practice in roundtable discussions at its Live and Local series of events.

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Comments

Good to see there was an appeals process but if FCA could not reach a ‘Suitable’ verdict without further input, this suggest that suitability hadn’t clearly ‘demonstrated’ by the file as submitted for review, which is effectively the requirement.

Either that or its staff reached an incorrect verdict first time around, which I frankly doubt based on my own experience of IMRO, PIA, FSA and other regulatory staff.